DELSAN TRANSPORT LINES, INC. vs. THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION G.R. No. 127897. November 15, 2001 FACTS: On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex. Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to cost. The trial court found that the vessel, MT Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo ISSUE: Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. HELD: No. The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier. Article 2207 of the New Civil Code provides that: Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance claim. Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the sinking of MT Maysun to fortuitous event or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall (unos) carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. This tale of strong winds and big waves by the said officers of the petitioner however, was effectively rebutted and belied by the weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent government agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank. The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer, the herein petitioner common carrier. Neither may petitioner escape liability by presenting in evidence certificates that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of appeals: At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their probative value, (thus): Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of certificates establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62) And also: Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness. (Ibid.) Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the court. In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit

0n Becembei 2u, 1987, the passengei ship Nv Boa Paz left the poit of Tacloban heaueu foi Nanila.The Nv Boa Paz is owneu anu opeiateu by Sulpicio Lines, Inc. At about 1u:Su p.m. of Becembei 2u, 1987, the two vessels colliueu in the open sea within the vicinity of Bumali Point between Naiinuuque anu 0iiental Ninuoio. All the ciewmembeis of Nv Boa Paz uieu, while the two suivivois fiom NT vectoi claimeu that they weie sleeping at the time of the inciuent.

SC: N0. The chaiteiei of a vessel has no obligation befoie tianspoiting its caigo to ensuie that the vessel it chaiteieu complieu with all legal iequiiements. The uuty iests upon the common caiiiei simply foi being engageu in "public seivice." The Civil Coue uemanus uiligence which is iequiieu by the natuie of the obligation anu that which coiiesponus with the ciicumstances of the peisons, the time anu the place. Bence, consiueiing the natuie of the obligation between Caltex anu NT vectoi, the liability as founu by the Couit of Appeals is without basis.

The ielationship between the paities in this case is goveineu by special laws. Because of the implieu waiianty of seawoithiness, shippeis of goous, when tiansacting with common caiiieis, aie not expecteu to inquiie into the vessel's seawoithiness, genuineness of its licenses anu compliance with all maiitime laws. To uemanu moie fiom shippeis anu holu them liable in case of failuie exhibits nothing but the futility of oui maiitime laws insofai as the piotection of the public in geneial is conceineu. By the same token, we cannot expect passengeis to inquiie eveiy time they boaiu a common caiiiei, whethei the caiiiei possesses the necessaiy papeis oi that all the caiiiei's employees aie qualifieu. Such a piactice woulu be an absuiuity in a business wheie time is always of the essence. Consiueiing the natuie of tianspoitation business, passengeis anu shippeis alike customaiily piesume that common caiiieis possess all the legal iequisites in its opeiation.

Thus, the natuie of the obligation of Caltex uemanus oiuinaiy uiligence like any othei shippei in shipping his caigoes.

In April of 1980, private respondent Ramon Miranda purchased from the Negros Navigation Co., Inc. four special cabin tickets for his wife, daughter, son and niece who were going to Bacolod City to attend a family reunion. The tickets were for Voyage of the M/V Don Juan, leaving Manila at 1:00 p.m. on April 22, 1980. The ship sailed from the port of Manila on schedule. At about 10:30 in the evening of April 22, 1980, the Don Juan collided off the Tablas Strait in Mindoro, with the M/T Tacloban City, an oil tanker owned by the Philippine National Oil Company (PNOC) and the PNOC Shipping and Transport Corporation (PNOC/STC). As a result, the M/V Don Juan sank. Several of her passengers perished in the sea tragedy. The bodies of some of the victims were found and brought to shore, but the four members of private respondents families were never found. Private respondents filed a complaint on July 16, 1980 in the Regional Trial Court of Manila, Branch 34, against the Negros Navigation, the Philippine National Oil Company (PNOC), and the PNOC Shipping and Transport Corporation (PNOC/STC), seeking damages for the death of Ardita de la Victoria Miranda, 48, Rosario V. Miranda, 19, Ramon V. Miranda, Jr., 16, and Elfreda de la Victoria, 26.

Whether or not the crew members of petitioner were grossly negligent in the performance of their duties.

HELD:

Petitioner Negros Navigation was found equally negligent in tolerating the playing of mahjong by the ship captain and other crew members while on board the ship and failing to keep the M/V Don Juan seaworthy so much so that the ship sank within 10 to 15 minutes of its impact with the M/T Tacloban City.

In addition, the Court found that the Don Juan was overloaded. The Certificate of Inspection, dated August 27, 1979, issued by the Philippine Coast Guard Commander at Iloilo City stated that the total number of persons allowed on the ship was 864, of whom 810 are passengers, but there were actually 1,004 on board the vessel when it sank, 140 persons more than the maximum number that could be safely carried by it. Taking these circumstances together, and the fact that the M/V Don Juan, as the faster and better-equipped vessel, could have avoided a collision with the PNOC tanker, this Court held that even if the Tacloban City had been at fault for failing to observe an internationally-recognized rule of navigation, the Don Juan was guilty of contributory negligence.

Facts: CMC Trading shipped on board petitioners vessel at Hamburg, Germany 242 coils of steel sheets for transportation to Manila, Philippines consigned to Philippine Steel Trading Corporation (PSTC) insured by respondent. The cargo loaded was considered in good order despite the notation metal envelopes rust stained and slightly dented placed on the Bill of Lading (BOL). Representative of the parties involved prepared and signed an inspection report as to the condition of the good prior to the unloading of the cargo. However, when the cargo arrived at the port of Manila and was discharged on July 31, 1990, 4 coils were found to be in bad order. With this, PSTC declared the same as total loss.

Despite receipt of a formal demand, petitioners refused to submit to PSTCs claims. Consequently, respondent paid the latter. The Notice of Claim was filed by respondent on September 18, 1990. Left unheeded, respondent sued petitioners to recover the amount it paid to consignee on July 25, 1991. The trial court dismissed the complaint, but it was reversed by the Court of Appeals (CA) on appeal. CA held that petitioners were liable for the loss, and opined that said notation in BOL had not been the proximate cause of damage of the 4 coils. Hence, petitioners filed this petition for review.

Issue: (1) Was the abovementioned notation in BOL at the time of loading sufficient to show pre-shipment damage or to exempt the common carrier from liability? (2) Should sec. 3, par. 6 of COGSA be applied, that the consignee should file its notice of loss within three days from delivery?

Ruling: (1) No. Petitioners failed to observe extraordinary diligence and precaution which the law requires a common carrier to know and follow to avoid damage or destruction or loss of the goods entrusted to it for safe carriage and delivery.

True, the abovementioned words noted in the BOL; however, there is no showing that petitioners exercised due diligence to forestall or lessen the loss. Having been in the service for several years, the master of the vessel should have known at the outset that metal envelopes in the said state would eventually deteriorate when not properly stored while in transit. Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them, said master and his crew should have undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these measures were taken. Having failed to discharge the burden of proving that they exercised extraordinary diligence required by law, petitioners cannot escape liability for the damage to the 4 coils.

(2) Yes, but the entirety of the said provision must be applied. First, the said provision provides that notice of claim need not be given if the state of goods, at the time of their receipt, has been subject to a joint inspection or survey. Prior to unloading of the cargo, the abovementioned inspection report was prepared and signed by the representatives of both parties. Second, as stated in the same provision, a failure to file a notice of claim within 3 days will not bar recovery if it is nonetheless filed within one year. This one-year prescriptive period also applied to the shipper, consignee, and/or insurer of the goods or any legal holder of the BOL. In the case at bar, the cargo was discharged on July 31, 1990, while the complaint was filed on July 25, 1991, within the one year prescriptive period.

Inasmuch as neither Civil Code nor Code of Commerce states a specific prescriptive period on the matter, COGSA, which provides for the same, may be applied suppletorily.

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Facts: MT Tacloban City, a barge-type oil tanker (carrying oil from Negros Occidental to Bataan, owner: Phil National Oil Co (PNOC)) and MV Don Juan (owner: Negros Navigation), an inter-island vessel with 750 passengers, officers, and crew collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of the island of Mindoro. When the collision occurred, the sea was calm, the weather fair, and visibility was good. MV Don Juan sank and the passengers perished. Among the ill-fated passengers were the parents of petitioners, the spouses Perfecto Mecenas and Sofia Mecenas, whose bodies were never found. They filed a case before the RTC Quezon City against Negros Navigation, and Capt. Roger Santisteban, the Captain of Don Juan.

RTC: Jointly and severally liable for damages. CA: Same, but reduced

Issue: Whether or not Negros Navigation and Captain Santisteban were negligent, and that petitioners are entitled to damages.

SC:

As for Actual and Moral damages:

The RTC considered the action under quasi-delict. The Court believes that it is more appropriately regarded as grounded on contract contract of carriage between the Mecenas spouses as regular passengers and Negros Navigation. In an action based upon a breach of the contract of carriage, the carrier is liable for the death of passengers arising from the negligence or willful act of the carrier's employees although such employees may have acted beyond the scope of their authority or even in violation of the instructions of the carrier, which liability may include liability for moral damages. It follows that petitioners would be entitled to moral damages so long as the collision with the "Tacloban City" and the sinking of the "Don Juan" were caused or attended by negligence on the part of private respondents.

The TC and the Minister of National Defense found out that: Both vessels were at fault in the collision.

M/ V Don Juan and Tacloban City became aware of each other's presence in the area by visual contact at a distance of something like 6 miles from each other. They were fully aware that if they continued on their course, they will meet head on. Don Juan - steered to the right; Tacloban City continued its course to the left. There can be no excuse for them not to realize that, with such maneuvers, they will collide. They executed maneuvers inadequate, and too late, to avoid collision.

"Don Juan" was at least as negligent as the M/T "Tacloban City" in the events leading up to the collision and the sinking of the "Don Juan."

As for the exemplary damages (requires level of recklessness or gross negligence):

It was found by the Phil Coast Guard that Capt. Rogelio Santisteban, was playing mahjong before and up to the time of collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking MS Don Juan and to supervise properly the execution of his order of abandonship.

The Court believes that the behaviour of the captain of the "Don Juan" in tills instance-playing mahjong "before and up to the time of collision constitutes behaviour that is simply unacceptable on the part of the master of a vessel to whose hands the lives and welfare of at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or around the time of actual collision is quite immaterial; there is, both realistically speaking and in contemplation of law, no such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom the law imposes the duty of extraordinary diligence- [t]he duty to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

The record does not show that was the first or only time that Capt. Santisteban had entertained himself during a voyage by playing mahjong with his officers and passengers; Negros Navigation in permitting, or in failing to discover and correct such behaviour, must be deemed grossly negligent.

There is also evidence that the "Don Juan" was carrying more passengers than she had been certified as allowed to carry. Persons allowed: 810. Total Passengers: 864.

Grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing circumstances in the context of the following facts: Firstly, the "Don Juan" was more than twice as fast as the "Tacloban City." The "Don Juan's" top speed was 17 knots; while that of the "Tacloban City" was 6.3. knots. Secondly, the "Don Juan" carried the full complement of officers and crew members specified for a passenger vessel of her class. Thirdly, the "Don Juan" was equipped with radar which was functioning that night. Fourthly, the "Don Juan's" officer on-watch had sighted the "Tacloban City" on his radar screen while the latter was still four (4) nautical miles away. Visual confirmation of radar contact was established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away.

The Court concludes that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in connection with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading to the death of hundreds of passengers.